When the Spanish conquistadors arrived in the mid-16th century on the immense plains of the bleak plateau that forms the westerly part of what is now Bolivia, they paused for a while at a settlement not far from the rim of a great canyon. At 12,000ft they found it too cold, and they made their permanent base in the relative shelter of the slopes below and founded the city of La Paz.

The village of El Alto on the high plateau, which 30 years ago was home only to the capital’s international airport, has now become a huge metropolis of nearly a million Indians, driven there over the past 20 years by the irresistible force of neoliberal economics. The prevailing economic system, devised by US economists in the 1980s, succeeded in destroying the country’s agricultural system and its embryonic industries, and closing down the state-owned tin mines – once the source of the wealth of Spain. This predictable disaster brought hundreds of thousands of workless but highly politicised families to live at the gates of the capital city, from where they have been able to hold it to ransom at will. Others migrated to the lower regions of the country, to the Chapare, to grow the profitable crop of coca leaf, the base of cocaine.

Only one road connects La Paz with the outside world, and it has been controlled since the middle of May by the irate Indians of El Alto. Every capital city in Latin America is much the same: a tiny enclave of unbelievable privilege surrounded by a gigantic swamp of poverty. But nowhere is this clash of cultures so vivid, so dramatic and so desperate as between the wealthy canyon of La Paz, home to the heirs of the original white settlers, and the freezing high plateau of El Alto, housing the breeze-block shanties of the expropriated indigenous population.

The demands of the Indians have been uncompromisingly radical. They make no mention of work or food, education or health. They have only two specific requests: a new constitution that would recognise the part that they should play in the government of the country (in which they form more than 60% of the population of 8 million), and the return to the hands of the state of the country’s reserves of oil and gas.

Oil was nationalised in Bolivia first in 1937, a year before the Mexican wells were expropriated that were once Lord Cowdray’s, and again in 1970. The shell of the state company, YPFB, still exists, and most Bolivians remain implacably hostile to foreign ownership, but private oil companies have kept coming back. When immense reserves of natural gas were discovered in the 1990s, some 50 trillion cubic feet at the last estimate, Bolivia became ever more attractive to external predators, its reserves second only to those of Venezuela.

The government and the companies (British Gas and Spain’s Repsol among them) were keen to get the gas out of the ground and down to the coast, to be shipped off to California. Others, notably the spokesmen for the Indian majority, thought that the gas might be better used to fuel Bolivia’s own industrial development. The government’s attempts to secure the export of the gas through Chile, Bolivia’s traditional enemy (ever since, in the 1880s, the Chileans seized the territory through which the gas pipeline would have run), ended in October 2003 when violent protests in El Alto led to the overthrow of President SÃ¡nchez de Losada, Bolivia’s last elected president. This week’s events have been an almost exact replay, with the resignation of the stop-gap president, Carlos Mesa, after prolonged Indian demonstrations and roadblocks had made the country ungovernable by his regime. Something new was required.

The chief emerging protagonist in the next stage of Bolivia’s drama is Evo Morales, an Aymara Indian from the high plateau who became the organiser of the coca growers in the Chapare, in the headwaters of the Amazon. From this base of desperate landless peasants and politicised former tin miners, he has become a national figure, allying the socialist rhetoric of the traditional Bolivian left with the fresh language of the indigenous population, now mobilised and angry.

A man in his 40s, a leftist of great charm and charisma, Morales leads the Movement Towards Socialism, and is an outspoken supporter of Castro’s Cuba. He is also a favourite son of Venezuela’s Hugo ChÃ¡vez, whose wider ambition has been to replicate the revolution of SimÃ³n BolÃ­var, a Venezuelan who liberated the countries of the Andes from Spanish control in the 1820s and whose name is immortalised in that of Bolivia. The Americans have accused ChÃ¡vez of providing Morales with assistance at the presidential election in 2002 (in which he came second), and this would hardly be unusual since all parties in Bolivia depend on external patrons, whether from Europe or the US. Morales has certainly taken a leaf from ChÃ¡vez’s book in demanding the holding of a constitutional assembly to draft a new constitution. This was ChÃ¡vez’s triumph in 1999, modernising and radicalising the country with a single blow before the forces of opposition could mobilise to prevent him.

The crisis that came to a head on Thursday night, as the congress met to accept President Mesa’s resignation in the old colonial capital of Sucre (away from the protesters in La Paz), was a triumph for the Indians. The danger had been that the presidency would fall to Hormando Vaca DÃ­az, the president of the senate and a wealthy white landowner from the lowland eastern region, centred on the city of Santa Cruz. He had the support of the largest parties in congress but was opposed by the Indians. The area around Santa Cruz is the principal wealth-producer of the country, with the soya fields of agribusiness on the surface, and oil and gas underground. This is the land of more recent white settlers, rich and racist, who have been opposed to the political emergence of the Indian majority in the western high lands, and to the Indian resistance that has emerged to challenge them in the lowlands. The organisation of the elite white groups has been asking for autonomy – some even argue for independence – and has unilaterally called for a referendum on this issue in August.

Everyone knew that Vaca DÃ­az was unacceptable to the Indians and, under pressure from the leaders of the armed forces and the Catholic church, he declined the task. So too did Mario Cossio, the second constitutional choice. It fell to the third in line, Eduardo RodrÃ­guez, president of the supreme court and a man without political affiliation, to take up the challenge. Fresh elections will be held before the end of the year, and Morales’s demand for a constituent assembly is on the agenda.

If Morales eventually emerges as Bolivia’s elected president, the entire relation of forces in the countries of the Andes will be changed, since comparable indigenous movements in neighbouring countries are also demanding their proper share of power. Yet there have been many false dawns. Observing events in Bolivia, an experienced Brazilian has suggested, is like “watching the train of history pass by on many occasions without the Indians ever securing a ticket to ride”. Not since the end of the 18th century has such a seismic upheaval occurred among the continent’s indigenous peoples. This time things may be different.

Richard Gott’s book, Hugo ChÃ¡vez and the Bolivarian Revolution, will be published by Verso in July. [email protected]